Dish Scoops Up Blockbuster for a Pittance

Blockbuster -- once the king of video rentals -- has reached an ignoble end. The carcass of the once-sterling company has been snatched up for nothing, for its bones.

Dish Network announced on Wednesday that it was the winning bidder in the bankruptcy court auction for the assets of Blockbuster. The satellite company's winning bid was approximately US$320 million. After adjustments, Dish will pay a paltry $228 million in cash to acquire the devastated rental company. The deal is expected to close in the second quarter of 2011.

Although Blockbuster has closed thousands of stores, it has 1,700 retail outlets still open for business. Blockbuster also has an online subscription service -- similar to Netflix -- which offers streaming movies, games and DVDs that are delivered by mail. Blockbuster remains a highly recognizable brand name. This acquisition could complement Dish's current offering and present new marketing and service opportunities.

This is the third in a series of deals led by Dish Network CEO Charlie Ergen this year that could potentially bulk up the company's capabilities. Last month, Dish bought another bankrupt company -- the satellite communications company DBSD North America. EchoStar, a set-top box company where Ergen serves as chairman, bought Hughes Communication in February.

Dish Network declined to comment beyond its official statement announcing the deal, as it has yet to secure approval from the bankruptcy court.

Expanding Customer Exposure

It can seem like a mistake to buy such an ailing company, but this might create some new possibilities for Dish.

"At first, I thought it was an April Fool's joke that got lost in the mail," Charles King, principal analyst at Pund-IT, told the E-Commerce Times. "But at second glance, it seems like an intriguing idea whose cost wasn't prohibitive."

Blockbuster could upgrade Dish by adding streaming movies, retail stores and movie and game delivery.

"In a sense, it's analogous to previous efforts where largely or fully Web-based businesses have established brick-and-mortar retail outlets," said King. "Apple's stores are probably the most successful example, but there are many others. Basically, Dish is hoping that it can use Blockbuster's locations to bolster its position in a rapidly shifting entertainment market, where Netflix and others leveraging online-based content are driving the current narrative."

Blockbuster comes with a ton of financial trouble, so this could be a risk for Dish.

"Expanding customer exposure is usually a good idea, but doing it by hitching your business to a brand in a death spiral is a questionable strategy," said King. "The big question here is can this revitalize Blockbuster? If Dish can't do something to make Blockbuster relevant again and bring in new customers, the idea is doomed."

A New Retail Presence

Retail stores could give Dish a new channel for selling subscriptions.

"I think Dish is buying a national retail presence and a well-known video brand they can use for anything from their existing Dish products to completely new streaming services," Carl Howe, director of anywhere consumer research at the Yankee Group, told the E-Commerce Times. "Those 1,700 locations provide a strong retail presence; as a comparison, that's about the same number of stores in the U.S. as Target."

This could be a preventive measure to keep Blockbuster from falling into the hands of the competition -- such as Comcast or DirecTV.

"I don't see this purchase as necessarily revitalizing Blockbuster, but rather one that allows Dish to be more aggressive in selling video products directly to consumers," said Howe. "And at the very least, it keeps DirecTV from buying those 1,700 locations to use against Dish."